The Cost of Producing Cigarettes in the U

question 156

Multiple Choice

The cost of producing cigarettes in the U.S. has increased and at the same time, more and more Americans are choosing to not smoke cigarettes. Which of the following best explains the effect of these events in the cigarette market?

• A) The supply curve has shifted to the right and the demand curve has shifted to the left. As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
• B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
• C) Both the supply and demand curves have shifted to the left. As a result, there has been a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.
• D) The supply curve has shifted to the right and the demand curve has shifted to the left. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

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Definitions:

Exercise Option

An option in derivatives trading that allows the holder to buy or sell an asset at a predetermined price before or on a specific date.

Convertible

A type of financial security that can be changed into a different form, most commonly a bond that can be converted into shares of the issuing company.

Promised Yield

The return an investor is told to expect from a bond or other fixed-income security, assuming it is held to maturity and all payments are made as scheduled.

Bond A

A financial security that represents a loan made by an investor to a borrower, typically corporate or governmental, which pays interest at predetermined intervals.